Euro, bond yields drop as Germany's Merkel holds on

London (Sept 25)  The euro and European government bond yields slipped on Monday after the bloc's most powerful leader, German Chancellor Angela Merkel, won a fourth term but faced a fractured parliament as support for the far right surged.

Investors were unnerved by the prospect of months of coalition talks that could distract from negotiations with Britain over its divorce from the European Union and efforts to integrate the bloc's remaining members.

Some analysts said the political uncertainty may also throw into question European Central Bank plans to reduce monetary stimulus, a move likely to be announced at the ECB's next meeting on Oct. 26.

"There might be some concerns at the ECB that a less stable and less pro-EU German government will have negative implications for the (economic) outlook. That would be dovish," said Frederik Ducrozet, an economist at Pictet Wealth Management.

Business confidence in Germany deteriorated unexpectedly in September, a survey on Monday showed, and the chief economist of the Ifo economic institute said the election result could stoke further uncertainty. A decline in the euro accelerated after the data, and by 1040 GMT it was down 0.6 percent at $1.1885 . That put more distance between a 2-1/2-year high of $1.2092 reached on Sept. 8.

Reuters